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b) Azalea is reviewing a project which costs RMI,350,000, and has no salvage value. Assume that depreciation is straight-line to zero over the life of
b) Azalea is reviewing a project which costs RMI,350,000, and has no salvage value. Assume that depreciation is straight-line to zero over the life of a project. It is expected to sell 9,000 units per year at RM35 net cash flow a piece for the next 10 years. The annual operating cash flow is projected to be RM35 9,000=RM315,000. The relevant discount rate is 16 percent. After the first year, the project can be dismantled and sold for RM950,000. Assuming the expected sales are revised based on the first year's performance. i) At what at what level of expected sales would it make sense to abandon the project? (4 marks) ii) Explain how the RM950,000 abandonment value can be viewed as the opportunity cost of keeping the project in one year
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